Fox Gregory Ltd v Spinks & Anor

An appellate court may interfere with a costs order only where the judge erred in principle, omitted or included an improper consideration, or reached a decision that cannot be justified by a fair balance of the relevant factors. The ordinary approach in AEI Ltd v PPL, [1999] 1 WLR 1507, applies to a straightforward costs dispute rather than the special context of a costs discretion exercised following a settlement agreement.

When assessing costs after an urgent application, the adequacy of a pre-action response must be judged from the recipient’s perspective and in its commercial context. A claimant who obtains significant interim undertakings has achieved substantial success. It should not ordinarily be penalised for discontinuing after receiving and reasonably considering evidence that removes the need for further relief.

Fox Gregory Ltd alleged that its former employee, Mrs Spinks, had removed confidential information on leaving to join Hamptons, a nearby competitor. It sought assurances from Hamptons, which said that it would investigate but did not give the requested undertaking. Fox Gregory then issued proceedings for breach of confidence, breach of contract and inducing breach of contract.

At an interim hearing Hamptons gave undertakings to deliver up or destroy relevant documents and to provide evidence. After receiving that evidence, Fox Gregory did not pursue its application and the action against Hamptons was dismissed by consent. HHJ Marr-Johnson ordered Fox Gregory to pay Hamptons’ costs. Fox Gregory appealed that costs order.

1. Appeal allowed. Lady Justice Arden, with whom Lord Justice Tuckey agreed, held that the judge’s costs order involved errors of principle. The order requiring Fox Gregory to pay Hamptons’ costs was discharged. Fox Gregory was awarded its costs against Hamptons.

2. The governing appellate standard was the general statement in AEI Ltd v PPL, [1999] 1 WLR 1507. A costs order is discretionary, so the appellate hurdle is high. However, the Court of Appeal may intervene where the judge has erred in principle, failed to consider a material matter, considered an improper matter, or failed fairly to balance the relevant factors.

3. The more stringent formulation of manifest injustice, discussed in Promar International Ltd v Philip Clarke, [2006] EWCA Civ 332, and BCT Software Solutions Ltd v C Brewer & Sons Ltd, [2003] EWCA Civ 939, concerned a costs discretion exercised following a settlement agreement. It did not govern this relatively straightforward dispute, which could be resolved by examining the short sequence of correspondence and the relief obtained.

4. Hamptons’ response to the letter before action had to be assessed from Fox Gregory’s perspective and in the urgent commercial setting. Hamptons had not dealt with the requested assurance despite notice of the alleged removal of extensive confidential information. Fox Gregory reasonably issued proceedings and sought interim relief. The additional proposed restraint on communications with clients was not pursued and did not materially affect the costs issue.

5. Fox Gregory was the substantial winner. Hamptons had to give significant undertakings, and Fox Gregory was entitled to await the promised affidavit evidence and take a reasonable time to consider it before withdrawing. There was also ample circumstantial evidence supporting the commencement of proceedings: Mrs Spinks had copied substantial material and immediately joined a nearby direct competitor. Fox Gregory need not wait for proof of actual use of the information before taking protective steps.

• Court of Appeal (Civil Division): Allowed Fox Gregory’s appeal and discharged the costs order made in favour of Hamptons: [2006] EWCA Civ 1544.
• High Court of Justice, Queen’s Bench Division (HHJ Marr-Johnson): Following dismissal by consent of the action against Hamptons, ordered Fox Gregory to pay Hamptons’ costs.